Cameras

GoPro Goes Big, but Customers Are Still Free to Jump

Investors apparently think GoPro (GPRO) is pretty rad. They coughed up $427 million for stock in the camera maker yesterday: Shares at its initial public offering fetched $24 apiece, the high point of the company’s expected price range.

That threshold values GoPro at almost $3 billion, not shabby for a company that essentially makes one camera and an ever-expanding ecosystem of accessories—battery packs, cases, and brackets to mount the camera on virtually anything from surfboards to sports cars to babies and eagles.

The value puts GoPro just out of range of the S&P 500 and the Nasdaq 100 but makes it slightly bigger than a lot of consumer-oriented companies, including Boston Beer (SAM) (the maker of Sam Adams), the Manchester United (MANU) soccer club, and Vail Resorts (MTN) (where one is liable to find plenty of GoPro cameras).

GoPro’s offering, apparently, was “oversubscribed” by multiples, which is Wall Street-speak for “the company should have priced its shares higher.” Early trading bore that out. Shares were hovering above $31 at midday.

GoPro certainly has a lot going for it. For one, people love its product. Secondly, it actually makes money. Of $986 million in sales last year, the company brought $61 million to the bottom line, a respectable 6 percent profit margin. Growth is strong as well, as sales surged 87 percent last year.

What’s more, the California company is no longer a startup. GoPro’s founder and chief executive, Nicholas Woodman, started cobbling together waterproof cameras a decade ago, and in the years since, his brainchild has fended off a number of rivals.

The big question is whether GoPro can keep its epic ride going. Competition certainly isn’t getting any cooler (see: Sony Action Cam). Meanwhile, switching costs, for a consumer, are relatively low—a couple of hundred dollars. For a community of people who are used to forking out money every couple of years for the newest high-tech skis and bikes and kayaks, jumping to a new camera system won’t take much of a nudge.

Here’s the tricky thing for GoPro: It’s probably too late for the company to lock users into its products the way Apple (AAPL) did with iTunes and the App Store. GoPro makes a suite of editing software, but one of the best things about its cameras is that the footage is platform agnostic. And anyone augmenting GoPro footage with video from a professional-grade camera is going to opt for beefier editing tools.

Having failed to establish “stickiness,” GoPro is left with two options: keep making increasingly great cameras to retain best-in-class status, or co-opt all the content its cameras are churning out.

The company is pursuing both those routes, according to its pitch to Wall Street. As of this morning, it is selling a rash of new mounts (including the “gooseneck” and a bracket to work with night-vision goggles). Not surprisingly, the company’s R&D costs are surging. In the latest quarter, 12 percent of GoPro revenue went to R&D. Apple, by comparison, shuffled only 3 percent of its sales dollars into design labs during that time.

Meanwhile, GoPro is trying to package its videos into a media platform it can sell to TV properties. “We believe GoPro is well-positioned to become the first media company whose content is captured exclusively using its own hardware,” the company’s SEC filing reads. Last year, people uploaded to YouTube (GOOG) 2.8 years’ worth of video with “GoPro” in the title—a veritable treasure trove for any video producer with designs on a Hulu channel or some similar forum. The company already has content deals with Virgin America and Xbox Live (MSFT), although it warns it “might not recover the investments” in those efforts.

This is a great idea, but it would be the company’s most impressive trick by far if it manages to pull it off. Most of the people making professional-style videos on a GoPro aren’t likely to hand them over for free. And while GoPro may be great at making cameras, crafting watertight licensing agreements is another thing entirely.